Emerging Markets: 3 Insider Chinese Stock Picks With Encouraging Inventory Trends

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Do you wish you could get a closer look at a company's sales trends? One idea is to compare changes in revenue to changes in inventory.

We ran a screen with this idea in mind. We began by screening for U.S.-traded stocks of Chinese companies for those seeing significant net insider purchases over the last six months, indicating these insiders expect their employers to outperform.

We then screened for positive sales trends, as indicated by higher growth in revenue year-over-year compared to change in inventory over the same time period, as well as inventory comprising a smaller portion of current assets over the same period.

To understand why these trends are positive, think of why the opposite trends would be negative. If inventory were growing faster than revenue, then it might indicate these companies are having trouble selling their inventory. Of course, management can decide to change the amount of inventory they hold, and changes may just reflect that decision.

Business section: Investing ideas
The results from this screen are listed below. These Chinese companies have the backing of company insiders, as well as promising sales trends compared to inventory.

Do you think they have strong sales prospects?

Use this list as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)

1. China TransInfo Technology (NAS: CTFO) : Provides public transportation information technology systems and related technology solutions in China. Over the last six months, insiders were net buyers of 569,135 shares, which represents about 5.28% of the company's 10.78M share float. Revenue grew by 29.74% during the most recent quarter ($45.46M vs. $35.04M y/y). Inventory grew by 16.2% during the same time period ($47.7M vs. $41.05M y/y). Inventory, as a percentage of current assets, decreased from 33.54% to 32.04% during the most recent quarter (comparing 3 months ending 2011-09-30 to 3 months ending 2010-09-30)

2. Zhongpin (NAS: HOGS) : Engages in the processing and distribution of meat and food products primarily in the People's Republic of China. Over the last six months, insiders were net buyers of 125,000 shares, which represents about 0.47% of the company's 26.50M share float. Revenue grew by 65.13% during the most recent quarter ($398.09M vs. $241.08M y/y). Inventory grew by -14.42% during the same time period ($37.14M vs. $43.4M y/y). Inventory, as a percentage of current assets, decreased from 19.13% to 10.11% during the most recent quarter (comparing 3 months ending 2011-09-30 to 3 months ending 2010-09-30)

3. Yongye International (NAS: YONG) : Engages in the research, development, manufacture, and sale of fulvic acid based liquid and powder nutrient compounds for plants and animals, which are used in the agriculture industry in the People's Republic of China. Over the last six months, insiders were net buyers of 2,128,040 shares, which represents about 5.68% of the company's 37.48M share float. Revenue grew by 95.94% during the most recent quarter ($140.59M vs. $71.75M y/y). Inventory grew by 21.79% during the same time period ($48.63M vs. $39.93M y/y). Inventory, as a percentage of current assets, decreased from 26.42% to 14.3% during the most recent quarter (comparing 3 months ending 2011-09-30 to 3 months ending 2010-09-30)

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Disclosure: Kapitall's Alexander Crawford does not own any of the shares mentioned above.

At the time this article was published The Motley Fool owns shares of Yongye International. Motley Fool newsletter services have recommended buying shares of Yongye International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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